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SIMPLE STOCK OPTION TRADING TECHNIQUES FOR SUCCESSFUL TRADING

By: Billy Williams..

Having been a student of the stock and option markets for 17 years and seeing new traders enter the market each year seeking there fortune only to see them wind up broke and bitter a year later I find myself wondering why this is with all the advances in trading. At the beginning of the 21st century I see more computer models, software programs, news commentary, new trading methods, etc. come into the marketplace than ever before being promoted to helping traders make millions yet aspiring online stock and option traders struggle even more than when I started out. After giving this much thought I believe now more than ever that trading success doesn't come wrapped in a pretty box with bows on it but from implementing effective methods that stand the test of time.

For example, for spotting trend reversals, I'll look at a stock that has been moving in a given direction, let's say upwards, and graph that stock's price action with a 2 period Relative Strength Index Indicator also called an RSI. I'll draw an upward trendline on the stock and watch for distribution on higher volume in the general market. If distribution days begin to add up to more than 4 or 5 then I'll watch the RSI on this stock for divergence and once spotted will watch for a break of that upward trendline. As soon as I have my trigger I use my method of entering the position for a short. Downward moves are twice as fast to the downside as they are to the upside so when the market sells off I am in a position to catch a rapid decline in price with a put position while limiting my risk.

One of the stock option trading methods I use is a pullback method that targets stocks for call option plays that are near there all-time highs in price, in a flat base pattern for at least two months, have a Relative Strength of 90 or more, and above there 200 day SMA(simple moving average). Once the stock begins to move up and out of it's flat base I watch for a pullback and compare it to it's 10 and 20 day SMA. Once price pulls back evenly to its 10 day SMA without violating its 20 day SMA(which acts as a stop for a position once entered) I wait for price to trade over the high of the previous day's price high to enter. This allows me to trade high-flying stocks at the beginning of a big rally with stock options while controlling my risk with an adjustable stop in place (the 20 day SMA).

Using seasonal trends in the general market helps me to determine my trading strategy at various times of the year. During the summer many traders at the exchanges go on vacation so trading is flat and volume is thin so I use credit option spreads for income. When they return from vacation trading begins to pick up going into the end of the year and I keep a close eye on the strongest stocks to ride them up on rallies with stock option trading or investing in the stock itself. I have caught incredible runs in stocks like HANS and others by taking advantage of this seasonal tendency. If you use stock option trading in taking advantage a stocks like this you could very easily capture 500% or higher returns using stock option strategies.

Gap explosions in either direction are also very powerful moves to take advantage of with a combination of call or put option strategies. A gap explosion is where a given stock is trending in a given direction or is range bound but then suddenly the stock gaps significantly higher than the previous day's closing price in the opposite direction. You can measure the reaction by using a variety of indicators like moving averages, price channels, or my preferred method which is to use Bollinger Bands. When using this method you can catch incredible moves as you are getting in on the beginning of a new trend. I have made incredible gains on Goldman Sachs, Apple Computer, Chicago Mercantile Exchange, and others using a combination of stock investing and option trading with this trading technique.

Having been in the trading game for a long time I have observed much of new advances being promoted in this new century of trading to both aspiring and veteran traders alike and I have come to believe that it does more harm than good. New trading systems, the latest indicators, neural networks, esoteric trading secrets, etc. do not guarantee trading profits nor trading success. Having a strong sense of the markets and stock option trading combined with the disciplined implementation of effective trading techniques will do more to produce successful trading results and consistent profits than the latest fads in the marketplace.

Article Source: http://ezine-articles-planet.com

For proven stock option trading techniques and trading momentum stocks go to www.stockoptionsystem.com today for real information you can use today.

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